Global Aircraft Lessors Raise Concerns Over India’s Draft Aircraft Repossession Rules

Global aircraft lessors and financiers have raised significant concerns over India’s draft Protection of Interests in Aircraft Objects Rules, 2025 (the “Draft Rules”), cautioning that the proposed framework could complicate the repossession of aircraft from defaulting airlines and increase financing risks for the sector. What was intended as a step to streamline asset recovery in the aviation sector may, in its current form, create fresh uncertainties for lessors operating in India’s fast-growing leasing market.

The Draft Rules, issued by the Ministry of Civil Aviation for public consultation, seek to operationalize India’s commitments under the Cape Town Convention (CTC) but have drawn industry attention for introducing provisions that may hinder speedy enforcement of creditor rights.

The Draft Rules make it mandatory for creditors, acting through the Irrevocable De-registration and Export Request Authorisation (IDERA) holder, to settle a broad range of outstanding dues before exporting an aircraft. These include unpaid employee wages, provident fund contributions, airport operator fees, air navigation charges, fuel bills, and Goods and Services Tax (GST) on leases or financing.

Industry stakeholders contend that such a requirement undermines the asset-backed security model underpinning aircraft leasing by shifting greater risk onto them and reducing the recoverable value of the leased asset.

Further, the Draft Rules eliminates the 2018 regulatory safeguard that capped airport and navigation dues at a three-month period following the deregistration notice, thereby potentially extending liabilities indefinitely.

Aviation financiers have noted that while the draft seeks to safeguard the interests of local stakeholders, the inclusion of unrelated dues could introduce operational and legal complexities in aircraft recovery. The possibility of disputes over non-aircraft-related liabilities may lead to procedural delays and increased uncertainty in repossession timelines.

The Aviation Working Group (AWG), an international body representing major lessors, financiers, and manufacturers, has placed India on its CTC compliance watchlist, assigning it a medium-risk score due to the introduction of non-CTC liens and absence of provisions ensuring insolvency primacy in its Draft Rules.

With nearly 80% of India’s commercial aircraft fleet operating under lease arrangements, the final rules are expected to significantly influence leasing costs, insurance premiums, and overall investor confidence in the country’s aviation market.

While the intent behind the Draft Rules is to protect local stakeholders and ensure fair settlement of domestic obligations, aviation experts have emphasized the need to balance such protections with international leasing norms. Ensuring a transparent, predictable, and harmonized repossession framework is viewed as critical to maintaining India’s attractiveness as an aviation financing jurisdiction and supporting the government’s broader goal of transforming the country into a global aviation hub.